Relief is a little iffy for contract-free customers thirsting for smartphones.
Weak quarterly earnings for prepaid carriers, like leader MetroPCS, TracFone, and Cricket-owner Leap Wireless, are making the ability of these second-tiered carriers to act effectively as alternative smartphone providers to the big-four operators a little murkier.
Why? As CNET Senior Writer Roger Cheng noted, the--even dropping, in Cricket's case--and in addition, smartphone-seekers appear to be signing on to other options, including prepaid plans with the major carriers like T-Mobile, or dropping down to government-subsidized feature phones in response to financial difficulties brought about by the recession.
Making the situation even trickier for the prepaid gang is the Catch-22 that more smartphone subscribers are exactly what their businesses need.
Smartphones are by far the bigger moneymaker in a lineup composed mostly of feature phones, since they let the carrier convert the customer to a higher monthly plan for unlimited talk, text, and data, usually between $45 and $60 per month rather than a cheaper $30- to $40-per-month rate. (Virgin Mobile is the notable exception, with a $35 smartphone option in addition to its $45 and $55 plans.)
Thirsty for smartphones
It's not just the bottom line driving these carriers' urge to inflate the smartphone portfolio. In the last fiscal quarter, 107.7 million smartphones , with Android phones comprising nearly 50 percent of the total handsets.
The carriers themselves are well aware of their customers' demand for smartphones in general, and for Android in particular. Meeting with CNET in March, MetroPCS director of handset product management Tony Lau said it's Android phones that customers want, and cited Android and the 4G LTE data network as the.
As it stands, Sprint-owned Virgin Mobile has the highest percentage of smartphone users out of the four prepaid carriers that CNET polled, about 30 percent. MetroPCS and Cricket Wireless each quoted that 25 percent of their user base owns smartphones, and Boost Mobile, also owned by Sprint, comes in at roughly 15 percent. By comparison, AT&T enjoys a 50 percent smartphone-using subscriber base, an AT&T spokesperson told CNET. T-Mobile's number is roughly 30 percent adoption, according to a carrier spokesperson.
Weak lineups, little 4G
The thirst for smartphones is evident in the carriers' ever-expanding portfolios, but some seem to be doing better than others at capturing high-powered and compelling phones. Virgin Mobile recently scored a hit with the
Boost Mobile's best phone is the
Fifth in the U.S. cell phone market behind T-Mobile, MetroPCS should be leading the charge, and it did to some extent when it launched America's first
Where are the up-to-five LTE-enabled smartphones that MetroPCS' Tony Lau MetroPCS' phone portfolio.)we'd see from MetroPCS by the end of 2011? We're still waiting. Since MetroPCS is the only prepaid carrier with any established "4G" network, this is its opportunity to shine. Instead, the lineup is beginning to stagnate. Even if it's not the fastest network around , by not offering more 4G-capable phones, many of its smartphone customers are stuck using Metro's 2.5G network, since it skipped 3G entirely. (See
Meanwhile, Cricket's smartphone portfolio currently leans on just two phones, the Huawei Ascend and the BlackBerry Curve 8530. However, it'll also get the Ascend successor, the
Bulking up a lineup is easier said than done. Prepaid carriers tend to be extremely sensitive to price, so the phones they offer off-contract (and unsubsidized) have to fit the expectations of their generally more cost-cautious customer base. The prepaid carriers' most advanced smartphones aren't cheap; most cost between $200 and $300 for the hardware alone, compared with about $200 for usually much more advanced (and heavily subsidized) phones offered by the postpaid carriers.
In addition to price constraints, prepaid carriers also must contend with tighter options. Since their sales volume is also significantly smaller than those of tier-one carriers, they have less leverage with phone makers when it comes to negotiating new phones for their portfolios. With their sheer volume of subscribers, U.S. leaders AT&T and Verizon will get the pick of the litter and can negotiate for exclusive access to certain models and designs.
MetroPCS' relationship with Huawei earns it some first-run Hauwei smartphone models in the U.S. (they seem to often later wind up at Cricket). It's possible that Virgin and Boost grabbed the swanky Triumph and Galaxy Prevail, respectively, thanks to parent Sprint's existing relationship with hardware makers.
It's true as well that prepaid carriers don't necessarily want to mimic the big four. Given their price promise, there may also be an understanding that customers are looking for smartphone competence, not necessarily top-of-the-line product; and an affordable, flexible all-in-one plan may trump glitzy hardware more often than not.
Assuming the above is true, it raises the question: is the prepaid model well-suited for smartphones? I'd argue yes. Not only is a healthy smartphone trade crucial for the prepaid carriers' continued growth, Virgin's Triumph, Boost's Galaxy Prevail, and even MetroPCS' 4G Galaxy Indulge prove that no-contract carriers can also cultivate quality handsets. In fact, as more basic Android smartphones begin supplanting the more sophisticated feature phones, opportunities should expand, since the stock Android OS is a relatively reliable and cheap solution to insert into midrange hardware.
However, a word of caution: if these prepaid carriers are to pursue the smartphone market, they'll need to be careful to skip Android duds and to refresh their basic BlackBerry offerings. It would be interesting to see the original Windows Phone hardware included as well, for instance something like the
Prepaid carriers must also continue to understand, and anticipate, that in the face of rapid technological advance, carriers who don't aggressively tend to their smartphone lineup will see the gap between tier-one and -two products widen, and watch as more of their customers satisfy their smartphone thirst elsewhere.